Question

QUESTION 1

XYZ Ltd produce a mini-kitchen called Tiny Tots, which is enjoying extensive popularity amongst young children. The following data is available for the month of March 2018:

Selling price (per unit)	R 116
Units in opening inventory	600
Units manufactured	2 550
Units sold	3 050
Variable costs per unit:
Direct materials	R 12
Direct Labour	R 50
Variable manufacturing overhead	R 6.50
Variable selling and administrative	R 10
Fixed costs:
Fixed manufacturing overhead	R 81 000
Fixed selling and administrative	R 14 000

The company produces the same number of units every month, although the sales in units vary from month to month. The company’s variable costs per unit and total fixed costs have been constant from month to month.

(a) Prepare an income statement for the month using the absorption costing method.

(b) Prepare an income statement for the month using the variable costing method.

Answer 1

a.

Absorption costing income statement
Sales		353,800.00
Cost of Goods Sold
Direct Materials	36,600.00
Direct Labor	152,500.00
Variable Manufacturing overhead	19,825.00
Fixed Manufacturing overhead	96,882.35
Total Cost of Goods Sold		305,807.35
Gross Margin		47,992.65
Selling and Administrative Expense		44,500.00
Net Operating Income		3,492.65

Variable costing income statement
Sales	353,800.00
Variable cost (78.5 x 3050)	239,425.00
Contribution Margin	114,375.00
Fixed Expenses	95,000.00
Net Operating Income	19,375.00